Are Your Advertising Dollars Driving Results?
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- LaserAway
Video Power Marketing had a massive opportunity with thousands of page visitors but couldn’t figure out how to monetize the traffic. First Class Business evaluated their Google Analytics user experience and studied available assets. Interestingly, a $200 course on Video SEO had been purchased only twice in 2 years. We quickly shifted this same course to the high traffic landing page and updated the price to $7. Conversions flowed immediately.
What started as a major struggle required patience that transformed into explosive growth.
When Todd from LaserAway began working with Video Power Marketing and First Class Business he had already invested a heavy six figures into YouTube with zero trackable return.
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Comparing Types of Advertising and Marketing Agencies
Advertising spans dozens of marketing opportunities both online and offline in today’s complex world. Meanwhile, the agencies that are supposed …
Using The ROAS Calculator
Use the First Class Business ROAS Calculator to estimate the profitability of an investment or compare the efficiency of a number of different investments. Here you can adjust the initial investment into your company or campaign and corresponding metrics in order to reverse engineer your success!
This means instead of spending irresponsibly and therefore praying in vain, you can practice spending here and start gaining a vision of what results you will need to hit in order to achieve your desired Return on Investment – all without spending a dime!
Keep in mind, there are still dozens of variables you need to account for beyond this calculator, so working with an expert team leader at First Class Business can aid you in planning for Sustainable Revenue Growth.
The Math Behind Our ROI Calculator
One simple formula to calculate your ROI looks like this:
The First Class Business ROAS Calculator is different and does not project ROI (nor do most “ROI Calculators” on the web.
This ROAS Calculator is not designed for Albert Einstein and it’s not the perfect equation…
Your business is WAY more flexible than a static formula can account for, especially at this stage of your growth. (i.e. below $1 billion in ARR)
How to Use the ROAS Calculator
Use the ROAS Calculator to estimate the profitability of investments you plan to potentially make into Facebook Ads or YouTube Ads.
As you adjust the metrics and contributed ad spend, you’ll see the Return on Investment (or Return on Ad Spend) and Expected Earnings show you how much money your organization will make on the campaign.
Determine Your Initial Investment Wisely
One of the first steps to determining your ROI/ROAS is knowing how to assess your Customer Value.
But you’ll also need to have confidence in a strong initial investment, or you’re likely wasting your time.
If you are a new business owner, investing is a critical part of growth that cannot be ignored.
It’s crazy how many unsuccessful business owners boldly claim, “I have never invested in online ads or digital marketing for my business” as though it’s some kind of badge of honor to survive. Most of those same people have massive debt, no profitability, and are creeping towards bankruptcy.
Why do they think that strategy is a winning recipe?
So while a lot of people are proud of themselves and happily admitting that they are attempting such a foolish strategy, just look at the results they are getting over 5-10 year periods and it’s often heartbreaking.
Meanwhile, consider the fact that most franchise owners spend more than $50,000 upfront on their business models, knowing that it’s going to take 3-7 years to see a return on their investment.
The reality is, your business needs investment capital.
Most business owners that properly invest in their growth are happy, successful people. And they’re not busy spinning their wheels with the get-rich-quick schemes that you may be reluctant to admit that you’re stuck in.
So once you’ve swallowed that pill, and determined to spend a minimum of $3,000 on advertising to test your market, you need to learn more about your Key Performance Indicators (KPIs).
Knowing your KPIs – and working towards achieving great results for each metric – will help you strategically move forward your bottom line. We’ll talk about this more later.
If you don’t know your KPIs, you won’t know what you’re testing – or how to test it – which means you won’t know where your campaign was successful and where its failing you.
The good news is, you’re learning and so results can only improve from here!
Customer Value
Customer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client.
Most uneducated business owners underestimate the value of their customers.
What if you were selling a cup of coffee?
Is their value $4? Or is it $2 after Costs of Goods Sold (COGS) is considered?
Or do you count on them becoming a repeat customer?
You need a marketing team that’s determined to understand this to it’s depth and you need to be diligent enough to support those efforts.
Kissmetrics did a tremendous job of breaking down the Lifetime Value of a Starbucks customer in this intricate report. *Credit to @avinash
Honestly, that’s WAY more info than you likely need.
And you probably don’t have a “Starbucks marketing budget”.
But you have to stop underestimating the value of each customer and you have to stop guessing if you plan to become truly profitable.
Cost per View
Cost per View (CPV) is the price you pay when your video ad is played. In general, the video does not have be to played the entire time to be considered a view, however, there are some brilliant “view hacks” that can be leveraged to maximize how far your dollar stretches.
Let’s stick to the basics for now though to understand how it works in general.
For example, if you paid $100 in ad spend and your video ad was viewed 1,000 times, then your CPV is $.10 because it cost you $.10 every time someone viewed your video ad.
It is common for CPV cost to range between $.04 to more than $.30 per view.
It is also very possible to construct an irresistible ad that delivers at rates lower than $.01 per view!
What factors contribute to your CPV?
Mostly supply and demand*.
Example 1: If you’re a B2B service provider – let’s be honest. No one wants to see your salesy ad and you already face high competition – so your cost per view will naturally be higher.
Example 2: However, if you own a restaurant that’s giving away free dessert – and your video is so funny that people share it – you’ll likely have a CPV closer to $.01.
*Keep in mind that Facebook and Google WANT users to enjoy their platforms. So if your ad RUINS the experience for their viewers – they will punish your brand. But if your ad IMPROVES the experience, they’ll reward you!
Click Thru Rate
As Google states, Click Thru Rate is the number of clicks that your ad receives divided by the number of times your ad is shown (i.e. impressions):
clicks ÷ impressions = CTR
For example, if you had 5 clicks and 100 impressions, then your CTR would be 5%.
In theory, the more clicks your ad gets, the better your ad is performing.
In all reality, clicks are used to gauge interest in your offer, your copy, and your relevance, but the prospect has still yet to interface with your company and you still have a tremendous amount of trust to establish with your potential buyer.
At this stage, you’re measuring potential and can begin predicting your results, much like a meteorologist.
Hint: Stop holding your breath.
Lead Conversion Rate
Lead Conversion Rate, as Google establishes, are calculated by simply taking the number of [lead] conversions and dividing that by the number of total ad interactions that can be tracked to a [lead] conversion during the same time period.
For example, if you had 50 [lead] conversions from 1,000 interactions, your [lead] conversion rate would be 5%.
conversions ÷ impressions = Conversion Rate
When a view converts into a lead, the rubber hits the road and your brand needs to start doing the heavy lifting.
Too many businesses want sales and profits to be automated without accounting for the relationship that the prospect expects to unfold!
You might be able to win without engaging with leads, but that’s no different than walking into a restaurant and having to seat yourself, put your own order in, get your own drinks, and never even be welcomed. If that doesn’t bother you, than good luck to you.
Brands who are hospitality driven would never be satisfied with ignoring prospects who are at the front door – yet so many brands ignore that this reality is playing out all over the internet – and yet you still expect to win without fixing it!
Lead nurturing is the KEY to maximizing opportunities created by a successful advertising campaign that lands prospects on your website or branded page.
Profitable lead nurturing requires both proper support training and sales training.
The more you skimp on this reality and the more you delay the development of your website and personnel, the more you will delay the effectiveness of your growth initiatives.
Customer Conversion Rate
Customer conversion rate depends on one of two main factors:
- Do your customers buy through your website (e.g. e-commerce, booking a flight, SaaS subscription)
- Do your customers process their transactions offline? (e.g. restaurants, plumbers, poorly positioned home service providers)
You can be offended by that slight.
Or, you can recognize that the world is changing and that your customers, in large part, are looking for providers that understand the value of convenience.
True or False:
- The more convenient it is to do business you, the more likely people are to buy?
- People would like things to be easier?
- People would like inconveniences to be faster?
- People would like your service to be simple?
So if you want your Customer Conversion Rate to improve, you are in full control of making that happen.
10 Common Online Optimizations:
- Simplify your check out experience.
- Improve the photos and presentation of your product and service.
- Add credibility to your purchase page.
- Add relevant testimonials to your purchase page.
- Offer diverse options for payment.
- Live Chat support.
- Cart abandonment campaign.
- Bonus perk or experience with purchase.
- Invoke emotions that inspire action through the power of video.
- Prepare an automated call system and call support team for last-minute buyer’s questions.
10 Common Offline Optimizations:
- Train your sales team.
- Simplify your appointment process.
- Enhance the prospect journey between the time they book until the time they buy.
- Improve the quality of your presentation.
- Connect your prospect “into the family”.
- Allow space for proper decision making as this shows strength of offer.
- Provide greater insight into the value of your brand.
- Share your greater vision and purpose with your prospects.
- Confirm appointments and provide flexibility.
- Highlight and review “scary areas” of your contract so that the prospect knows you’re not hiding any red tape.
Mos businesses overlook dozens of areas that are fairly simple optimizations because they’re either scared to address the issue or are unaware of the problems all together.
We’re here to help you fix the unseen challenges that hold back your business growth.
Ad Spend
You already know that Ad Spend is the amount of money that you spend on advertising, but nearly everybody approaches this with the wrong mindset.
Myths about Ad Spend that harm your business:
- Myth: Ad spend is a % of your monthly budget.
- Mythbuster: While some oversimplified Forbes article written by some nitwit with experience in one business model might project such a theory to make you feel better, no percentage adequately determines your ad spend.
- Truth: Your budget should be determined based on the size of your goal. Think of your business like a movie production. Do you want your business to be “the next Avengers”? If so, invest $100+ million. Or do you want to “win the local film festival”? Invest a few thousand and you’re probably fine.
- Myth: ROI and ROAS are NOT your true goal until you’ve proven and tested your funnels.
- Mythbuster: Have you jumped from campaign to campaign and team to team, all promising returns and yet you’re still left with a bunch of underperforming funnels, clicks, and opt-ins, but mediocre revenues at best? And worse, no clear direction forward.
- Truth: The reality is that you need to respect the Research and Development stage, and advertising is one of your greatest resources to testing your market. Why? Because people HATE ads. So when you can make your message and offer intriguing enough that people actually WANT to click, that’s a powerful campaign that will easily work on your existing client-base as well. The Scientific Method should be followed when testing through campaigns and both short-term and long-term results should be accounted for in addition to how ads can provide you with insight into ALL areas of your business.
- Myth: You should wait to spend on ads until you have a proven offer.
- Mythbuster: If you haven’t spent on ads, I’m no oracle for knowing that you don’t have a proven offer.
- Truth: You won’t develop an irresistible offer until you test your market thoroughly and become attractive at all stages of the purchase funnel: awareness, interest, consideration, intent to buy, evaluation, and the purchase experience itself.
Can you win on $300 or $3,000 in ad spend? Absolutely.
You should consider your risks though: do you want to risk losing more money or would you rather risk losing more time?
Be ready to part ways with $5,000-10,000 during the testing phase and work with an expert, not just someone with a fancy title like, “Facebook Ads Strategist” or “Certified FunnelHacker”.
- Do your research on HOW to hire.
- Know the red flags.
- Know the difference between branding and conversion success.
- Know your goals, industry benchmarks, and
- Evaluate your assets honestly.
- Check the references for crying out loud.
- Or blame yourself when you fail.
Spending on advertising successfully will liberate your business in ways that other mediums cannot.
Fun Fact and Exception
You may be aware that Tesla has a $0 advertising budget. However, according to VisualCapitalist, they spend more than 3x as much as their competitors on R&D. They did have a PR Department until 2020, but Elektrek reports that it was shut down, however, they do have billionaire Elon Musk at the podium and there are more conversations that they would rather avoid than be involved in at this point, due to the manipulative nature of the press anytime someone is winning.
So if you want to be the next $0 ad spender:
- How will you go about R&D?
- How will you generate buzz?
You may want to keep an eye out for Elon’s online course, because I don’t know anyone else who truly won big with that recipe.
Gross Return
Why reinvent the wheel? Investopedia teaches it well:
“The gross rate of return is the total rate of return on an investment before the deduction of any fees, commissions, or expenses. The gross rate of return is quoted over a specific period of time, such as a month, quarter, or year.”
Too many inexperienced business owners believe agencies that claim they’ve gotten you a decent ROI, when in reality they are only calculating your return BEFORE expenses.
Challenge and double-check all data presented to you.
It’s in your advertising team’s best interest to impress you, so you must be aware of their bias to paint a winning picture of their own efforts.
Estimated ROAS
Singular defines ROAS as follows:
“Return on ad spend (ROAS) is a marketing metric that measures the amount of revenue earned for every dollar spent on advertising. Similar to return on investment (ROI), ROAS measures the ROI of money invested into digital advertising.”
This is simply inadequate.
The critical difference between ROI and ROAS is that ROAS is often presented as ROI, although it’s excluding the costs of tools, employees, management fees, and additional costs associated with any given campaign.
- Vehicles exclude upgrade costs.
- Homes exclude closing costs.
- Credit cards downplay interest rates.
- Retail excludes taxes.
- Advertisers avoid discussing ROAS.
Don’t be a victim. Educate yourself and understand that *the uninformed and ignorant rarely win.
*Disclaimer: We don’t point this out to be mean. Our world has nearly 7 billion people who are taken advantage of often and it’s honestly heartbreaking. We simply know how cruel the world can be and our hope is that this inspires you to take greater responsibility in your initiatives so that you can win big, while we remain honest about the fact that so many people have no chance of succeeding in the current business environment that exists.
Net Return
Cambridge defines:
“The amount of money received from an investment or a company’s activities after all costs have been paid.”
Disclaimer: We cannot calculate your true Net Return because all businesses have different hard costs associated with their business models, assets, and liabilities, however, you’ve likely gained more clarity here than anywhere else, and that is the goal.
Our hope is that you have gained enough clarity to ask new questions so that you can make informed decisions.
We know that this could lead to you recognizing our efforts to provide transparency, so that you can confidently reach out to the First Class Business Team.
If you have a strong desire to serve others, a product or service that the world will benefit from, and you look forward to working along side a team of critical thinkers that can scale your brand to new heights, and would like to explore a working relationship, than we welcome a phone call.
Net Profit
Net Profit, or net income indicates a company’s profit after all of its expenses have been deducted from revenues. Net profit is an all-inclusive metric for profitability and provides insight into how well the management team runs all aspects of the business that impact the financial bottom line. Net profit is often referred to as the “bottom line” due to its positioning at the bottom of the income statement.
Glossary of Financial Terms Entrepreneurs Should Become Familiar With
Return on ad spend, or ROAS, is a calculation that helps companies determine the profitability of advertising efforts. If you earned $1.25 for every $1.00 you spent on advertising a particular product or service, how many times would you make that trade? As many times as your company infrastructure could handle, right? But what if you earned only $0.80 for every $1.00 spent on advertising? With a negative ROAS like that, you would need to adjust your approach.
You wouldn’t put a lot of time and money into a project that you didn’t expect to yield much financial return for your investment, right? Return on Investment is a calculation of the monetary value of an investment versus its cost. The ROI formula is: (profit minus cost) / cost. If $10,000 was generated from a $1,000 effort, the return on investment (ROI) would be 0.9, or 90%.
EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances. Basically, it’s a way of simplifying the calculation of net profits a company has by ignoring some of the fine print, like how much of the profit was eaten up by interest on loans or recouped by tax write-offs on depreciating assets.
Earnings before interest and taxes (EBIT) is an indicator of a company’s profitability. EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.
The internal rate of return (IRR) is the annual rate of growth that an investment is expected to generate. ROI indicates total growth, start to finish, of an investment, while IRR identifies the annual growth rate.
Gross profit, also called gross income, is calculated by subtracting the cost of goods sold from revenue. Gross profit only includes variable costs and does not account for fixed costs. It can be helpful to a business owner to see how much profit there is when excluding infrastructure costs that are not directly tied to the number of units sold.
Net Profit, or net income indicates a company’s profit after all of its expenses have been deducted from revenues. Net profit is an all-inclusive metric for profitability and provides insight into how well the management team runs all aspects of the business that impact the financial bottom line. Net profit is often referred to as the “bottom line” due to its positioning at the bottom of the income statement.
Profit margin is about how much money you earn (or lose) on average per each sale of a given product or service (or as a business overall). The profit margin is a ratio of a company’s profit (sales minus all expenses incurred to deliver the product or service that was sold) divided by its revenue. The profit margin ratio compares profit to sales and tells you how well the company is handling its finances overall. It’s always expressed as a percentage.
ARR is an acronym for Annual Recurring Revenue, a key metric used by SaaS or subscription businesses that have term subscription agreements, meaning there is a set contract length. It is defined as the value of the contracted recurring revenue components of term subscriptions normalized to a one-year period.
Monthly Recurring Revenue (MRR) is the amount of predictable revenue that a company can expect to receive on a monthly basis. MRR is critical to understanding overall business profitability and cash flow for subscription companies.
FAQ
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.
In theory, ROAS and ROI can represent the same equation, because if you’re running your own ads, with your own creatives, it’s possible that you have no additional hard expenses in relation to your return since your only expense would be that of your ad spend.
However, this also does the disservice of devaluing your time as an expendable and dismissable resource.
In reality, most advertising campaigns require: time, team members, design, development, branding, management, reports, and other fees that also takeaway from the return you could generate.
Yes, and often this is the case for many reasons.
One disadavantage that “quick success” businesses run into is that they never develop the need to learn what to do “when the magic fades” (e.g. Groupon, Foursquare, Myspace, etc.).
When you rely on return on investment (ROI) as the pre-dominant source of determining whether your campaigns are valuable to your business growth or not, you’ll likely bottleneck and strangle your growth into a position of irreparable damage.
Yes, the advantage to tracking ROI is that it’s fun and it’s an easy metric to calculate and understand.
ROI is a necessary part of the formula to calculate profitability.
Performance is usually judged in terms of how you utilized assets to earn a profit.
So ROI can be very helpful with maximizing profit and is a critical factor when making decisions regarding investments of capital assets.
The disadvantage occurs when the entrepreneur, or team, over simplify metrics and over emphasize the role ROI has in determining the success of your organization or campaigns.
ROI is a lag indicator that only emphasizes the financial gains made.
The return on your investment is not sufficient data to help you understand how the return was achieved and leaves your business vulnerable for risks associated with long-term success.
Some additional values that you need to be tracking include Department KPIs, OKRs, Net Promoter Scores, Seasonal Trends, etc.
To put this simple, the sheer array of available formulas and definitions of success can make it hard to project and hard to agree on.
Many marketing campaigns also don’t directly tie to revenue.
For example, 2021 saw a massive increase in advertising in order to attract new employees.
How do you calculate the ROI of paying someone to work for you?
Most business owners (and even marketers) don’t know.
So if a marketing campaign is designed to generate awareness or buzz – or for a non-revenue initiative, then it can be difficult to determine the value since you cannot directly see the connection through a simplified ROI formula.
On the flip side, a sales rep can sell $2 million worth of services for your brand (without a phone or a computer) by going door to door and most of your metrics would be untrackable, but the value becomes self-evident. Unless he’s selling through manipulative tactics that are slowly destroying your company’s reputation in ways that won’t be seen or felt for weeks or months.
So don’t limit yourself by ROI.
Limiting your company to strategies that require a strict track record or relying to heavily on uncontrollable business models could restrict your growth and collapse your value.
So what do you do?
Never lose sight of your long-term growth or become addicted to or reliant upon quick and easy wins.
Make sure you create campaigns that are designed to better meet your long-term business needs.
Then be careful, because even though you may see an initial ROI (or a lack thereof), early metrics will often mislead you and likely cause you to make hasty reactions that aren’t in the interest of scalable growth.
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“Jackson’s knowledge of the Moments of Truth is magnificent. As a Sales VP of IBM who’s never missed a $1+ Billion quota in more than 20 years, I’m honored to have been Chairman of the Board for one of Jackson’s companies. Our time together, before the merge, was full of purpose and execution at the highest levels. The future is bright for anyone working alongside him and his teams. We’ll enjoy a life long friendship.”